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The case for making a difference in business

It’s the latest buzzword you’ll hear at a thousand conferences: shared value. But what does it really mean and how can the concept be implemented practically in companies?

17 May 2018 - 10:36
Hanna Ziady

You’d be forgiven for thinking that "shared value" is just a buzzword to obscure the real reasons businesses exist: to make profit and deliver returns to shareholders.

The concept made its debut in a 2006 Harvard Business Review article by a Harvard Business School professor, Michael Porter. "Shared value is not social responsibility, philanthropy or sustainability, but a new way for companies to achieve economic success," he wrote at the time.

Later, in 2012, Porter and consulting firm FSG launched the Shared Value Initiative, which advocates a business strategy that "reconnects company success with social progress". Only, that still sounds a little too much like jargon that only MBA graduates would understand.

Shift Social Development CEO Tiekie Barnard admits that, even in countries that have been grappling with the concept for a lot longer than SA, there is still confusion.

"People still confuse [shared value] with corporate social investment," she says. "Some companies have taken the word sustainability and replaced it with shared value."

These companies "talk it" and may believe they are doing it, but don’t really make the grade when you dig a little deeper, Barnard says.

At its heart, shared value is really about developing business-driven solutions for social problems. Put differently, driving positive social change while making a profit.

This is easier said than done. And quite which trade-offs should be made to achieve this is not always clear. For example: should a company employing thousands of people and paying billions in tax be shut down because its business practices are not always environmentally friendly?

This month, Shift Social Development, a shared-value consulting firm, will host the 2018 Africa Shared Value Summit in Johannesburg, which aims to grapple with these issues.

Shared value is not social responsibility, philanthropy or sustainability, but a new way for companies to achieve economic success

Professor Michael Porter

Barnard hopes the event will create greater awareness of shared value among African companies and give them the tools to implement it in their businesses.

It follows the lead of the Shared Value Leadership Summit, held annually in New York in May. Barnard recounts how, at the New York conference, Porter spoke of how this was "only the beginning" of the shared value journey.

"It is a young business concept, we have to give it that," she says.

Barnard argues that there needs to be an "Africa strategy" for shared value. This month’s summit, she hopes, will forge relationships between companies, not-for-profits, nongovernmental organisations and foundations to implement the concept in Africa.

For example, partnering a renewable energy company with an agricultural organisation could help to develop more sustainable farming methods on a larger scale.

"The shift has to come from investors," says Barnard.

In other words, asset managers, who are deploying capital given to them by savers need to be aware of environmental, social and governance issues. So, just as fairtrade advocates won’t buy goods and services from companies that don’t abide by fair labour practices, asset managers should also refuse to invest in companies with unreasonable pay gaps between their executives and lowest- paid workers.

SA doesn’t exactly have a thriving culture of shareholder activism. This is changing, however, as corporate scandals like Steinhoff indicate that leadership failures within companies can have dire consequences for shareholders. But the shift may be driven more by a desire to protect investment returns than wanting to see companies "do good".

"The shift to shared value is not going to happen overnight," says Barnard. "Activists like us have to make these organisations aware they have a much bigger role to play in bringing about change within society."

Some companies have embedded shared value in their organisational strategy, like Adrian Gore’s insurance powerhouse Discovery.

Discovery describes itself as having a "shared-value insurance" model. Practically, this means it rewards policyholders for taking steps to manage their own insurance risk by, for example, giving them discounts on gyms and healthy food, or cash back on their fuel spending if they drive more safely. This behaviour would lower claims, which would make Discovery more profitable while also contributing positively to society by alleviating the disease burden or making the roads safer.

What it means

It is really about developing business-driven solutions to solve social problems

This shared-value model is embedded in Discovery’s products through its Vitality rewards programme. It is a model Discovery has exported around the globe, by enabling insurance companies from Asia to North America to plug the Vitality chassis into their businesses.

While Discovery Vitality is undoubtedly a compelling example of how shared value can be built into the foundation of a company, even with Discovery faults can be found. For instance, doctors frequently complain about the business practices of Discovery Health Medical Scheme when it comes to paying for medical treatment, while analysts are critical of Discovery’s "aggressive" accounting practices.

So, even in some of the most advanced shared-value models, there can still be lingering questions over how deep the "profit with purpose" motive runs.

And more needs to be done to separate those companies implementing true shared-value practices from those paying lip service.

In the US there is a nonprofit organisation called B Lab, which certifies companies as "B corporations" if they meet certain criteria. B Lab says its vision is that "one day all companies compete not only to be the best in the world, but the best for the world".

B Lab does an impact assessment which will determine if those companies meet set standards of social and environmental performance, public transparency and legal accountability.

It says it "envisions a global economy that uses business as a force for good. This economy comprises a new type of corporation — the B corporation — which is purpose-driven and creates benefits for all stakeholders, not just shareholders."

In SA, there are just five certified B corps. These are IQbusiness, Imani Development, LifeCo UnLtd Investments, Ecolution Consulting and Zoona, a mobile money operator in Africa. Chances are you’ve only heard of one or two of these companies.

While the shared-value movement has not aligned itself with the B corp movement, both are trying to achieve the same outcome: a better world inhabited by businesses that are a force for positive social change.

Barnard says business is "about profit, yes — but it is also about the impact you make on people’s lives."